E-banking tops 43trn/- as digital thefts overwhelm local banks

By The guardian reporter

The chairman of Tanzania Bankers Association, Dr Charles Kimei.

 The deployment and use of digital technologies in the country has significantly transformed Tanzania’s monetary landscape boosting growth of financial services tremendously but also almost equally exposing banks to new operational risks, the central bank has said.

A new Bank of Tanzania (BoT) report has it that digital transactions in the banking system topped nearly 43trn/- last year, which was an increase of 33.5 per cent over the performance in 2013. The amount is over 400 times more than the total deposits of the 12 community banks in the country whose deposits base was less than 100bn/- last year.

However, unconfirmed reports from financial experts indicate that the banks recently coughed up nearly 1trn/- in compensations to victims of cyber thefts, which take many months to be finalized.

“Growing inter-linkages between banking systems with mobile money platforms creates operational and cyber risks,” warns the central bank in the latest Financial Stability Report.

“Usage of mobile phones allows customers to access banking services through the mobile money platform, exposing the core banking system to hackers. This calls for enhanced capacity to monitor and mitigate cyber risks,” it adds.

Bankers concur saying they are putting a brave face on the situation but note that they cannot do without the new technologies in the prevailing market conditions and sectoral competition challenges.

Internet banking alone involved transactions amounting to about 27trn/-, more than the total deposits of the community banks, which Governor Benno Ndulu says are facing liquidity problems.

Last week, the chairman of Tanzania Bankers Association (TBA), Dr Charles Kimei, said digital technologies have been a major pull factor in luring new customers. He said the deployment of electronic systems in the sector has also been decisive in enhancing profitability of banking financial institutions.

“For example, SimBanking at CRDB Bank has been contributing more than 5bn/- to our profits,” Dr Kimei, who heads Tanzania’s largest bank in terms of total assets and deposits, told The Guardian in an exclusive interview on Friday.

SMS banking transactions reached 1.16trn/- last year from 587,06bn/- in 2013.

Currently there are seven modes of electronic payment services in use in the country. These comprise mobile payment services, automatic teller machines (ATMs), and mobile banking services as well as point of sale (POS) devices, electronic cards, internet banking and money transfer services.

Dr Kimei said the value of business transacted through these channels was huge and set to increase as more market players adopt the digital systems. The number of banking institutions offering mobile (SMS) and internet banking increased to 21 and 19 last year from 15 and 16 recorded in 2013 respectively.  

According to BoT’s Directorate of Banking Supervision Annual Report 2014, there were four providers of mobile payment services at the end of last year. These are M-Pesa of Vodacom (T) Limited, Airtel Money of Airtel (T) Limited, MIC (T) Limited’s Tigo Pesa, and Zantel (T) Limited’s Ezy Pesa. 

“The number of registered users of mobile payment services increased by 30 per cent from 31,830,289 recorded in 2013 to 41,380,791 in December 2014. Most of those mobile payment services users are registered in more than one mobile payment provider,” the report reads in part.

It says that during the period under review, the total value of mobile payment transactions increased by 41.73 per cent. They increased by about 12.1trn/- to nearly 41trn/- at the end of last year from around 28.9trn/- recorded in 2013.

As at December 31, 2014, the number of ATMs reached 1,610 compared to 1,526 that were recorded at the end of 2013. The number of POS devices increased to 2,598 from 2,569 reported in the previous year. 

“The value of ATMs transactions increased by 84.78 per cent from 7,637bn/- recorded in 2013 to 14,111bn/- in 2014 while POS transactions’ value increased to 531.55bn/-compared to 347bn/- in the previous year indicating an increase of 52.90 per cent,” the report notes.

The value of mobile (SMS) banking transactions increased to 1,161.76bn/- compared to 587.06bn/- recorded in the previous year being an increase of 97.92 per cent. The value of internet banking transactions also increased to 27,174.15bn/- from 22,724.86bn/-reported in 2013, recording an annual growth rate of 19.58 per cent. 

BoT says the usage of electronic services has grown significantly overtime in the economy and the banking sector in particular. It also has it that information and communication technology (ICT) has contributed immensely towards improving financial inclusion in the country.

However, the central bank warns that banks and other financial entities should be extra vigilant of the risks posed by the electronic payment systems. BoT says that it has taken several measures to deal with the menace, including preparation of the National Payments System Bill, which was enacted by Parliament in March this year.

In 2014, the bank also drafted mobile financial services regulations and put in place a financial education strategy. It as well developed the legal, regulatory and supervisory framework to enhance financial consumer protection.

Working in conjunction with a number of stakeholders, BoT in 2013 formed a task force to fight against the cyber-crimes. The outfit comprises members from BoT, Tanzania Communication Regulatory Authority (TCRA), the Financial Intelligence Unit (FIU), Tanzania Bankers Association (TBA) and the Police Force Cyber Crime Unit.

According to cyber security company Kaspersky Lab, a group of international hackers stole almost US$1 billion (about 2.2trn/-) from 100 banks in over 30 countries in a cyber-theft that has been going on for the past two years.

A research conducted in 2012 by Deloitte & Touche revealed that banks in East Africa lost over 80bn/- to cyber rackets noting that the figure was set to rise because of lack of proper anti-digital crime strategies in the financial institutions.

Information systems audit and control expert Boniface Kanemba says the extent of the problem in Tanzania was difficult to establish because banks do not readily disclose the thefts and the involved sums.

The banks’ reluctance to open up emanates from the fear of losing credibility and customers, he said. BoT has also never disclosed the amounts lost through cyber thefts in banks, which in most cases involve insiders.

According to reported police statements, a total of Sh1.3 billion; $551,777 and Euro 8,897 have been stolen across the country through different forms of cyber trickery in the past few years. 

ATM theft commonly known as “card skimming” has now become a critical problem across the country, especially in Dar es Salaam – where the burden of refunds is said to have overwhelmed many banks.

“During the year ending March 2015, the systemically important payment systems operated without major disruptions, and recorded increase in volume and value,” BoT says in the Financial Stability Report.

“Average growth of 30.5 per cent and 375.9 per cent in value and volumes respectively were recorded during the period ending March 2015 compared to the corresponding period in 2014,” it adds.

“Mobile financial services operated by banking institutions and mobile network operators continued to expand thereby enhancing financial inclusion,” Governor Ndulu said.

However, access to financial services by most bankable population in the country remains low, he added. According to him, BoT, in collaboration with other stakeholders, continued to spearhead initiatives towards an inclusive financial system in 2014. 

These were undertaken under the auspices of the National Financial Inclusion Framework. The measures included initiation of the process to develop a national financial inclusion database to track progress and achievements as well as drafting of mobile financial services regulations.

Last year, Tanzania was the first country in sub-Saharan Africa and the ninth in the world to reach the global financial inclusion target of 50 per cent set under the Maya Declaration. Prof Ndulu said this was achieved after the  number  of  adults  with  access to  financial  services  had doubled  in  five  years.  According to him, mobile phones played a “critical link” between the unbanked and the formal system. Under the terms of the Maya Declaration, BoT committed to increase the share of the population with access to financial services from 27 per cent in 2009 to 50 per cent by 2016.

Tanzania surpassed this target at the end of 2013, and set to achieve an inclusion of 75 per cent within the next six years. The Maya Declaration is a statement of common principles regarding the development of financial inclusion policy made by a group of developing nation regulatory institutions during the Alliance for Financial Inclusion's (AFI) 2011 Global Policy Forum held in Mexico.